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Complexity must be taken out of pensions to encourage savers to engage warns Punter Southall Aspire

Alan Morahan, Chief Commercial Officer at Punter Southall Aspire, welcomes the news that the Pensions and Lifetime Savings Association (PLSA) and the Association of British Insurers (ABI)[i][i] have joined forces to launch a pensions awareness campaign, but warns more must be done to make pensions easier for savers to understand.

Alan said: “The Association of British Insurers (ABI) and the Pensions and Lifetime Savings Association (PLSA) have recognised that more needs to be done to raise the public’s awareness and understanding of all things pension related and are launching a campaign to do something about it.

“Well, when I say ‘all things’ I don’t really mean it because, even though I’ve worked in the industry for more years than I care to remember, I know far from everything about pensions and that’s partly due to the fact that the pension arena has been made ridiculously complicated. Pensions are not inherently complicated but successive governments have made them so.

“In 2006, the great misnomer of Pension Simplification was introduced. The then pension rulebook was a mish mash of legislation, which had built up over many years and there was a strong industry and government view that it was acting as a barrier to people properly engaging in retirement planning.

“The Sandler Report from July 2002 stated, ‘Pensions taxation is extremely complex, and this has a number of effects. For instance, the fact that there are eight tax regimes for pensions, each of which is complicated, leads to confusion both for the public and professionals; this is a disincentive for saving, especially amongst the more modest income groups. Simplification of the pensions taxation regime is therefore a high priority.’

“So, the Labour government of the time set about major reform, which occurred in April 2006 to much fanfare (well, in the pensions industry at least). But the trouble with governments is that they can’t leave well alone, and they keep changing the rules. As a result, we’re now back in a situation where the public don’t understand pensions and when they try to understand them, they find they’re shrouded in jargon, complexity and rules and we wonder why they’re not engaged.

“I absolutely applaud this joint PLSA/ABI initiative and it completely aligns with initiatives like Aspire to Retire and National Pension Tracing Day that we’ve instigated in Punter Southall Aspire, but I am concerned that unless some complexity is taken out of the system, we’ll still end up with a population that don’t understand and engage with their pensions.

Alan added: “Maybe it’s time for a new Pensions Commission with a remit of revisiting simplification. A Commission can bring about change if the right people are involved and if it gets the right level of support – the last one resulted in automatic enrolment with default contributions; the re-linking of the state pension to average earnings; increases in the state pension age designed to keep the proportion of life spent in retirement constant and a reduction in the number of NI qualifying years to get the full state pension.”

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